Red Robin Doing Better Than Burger Peers, Maxim Says

Maxim’s Stephen Anderson believes that there is a lack of any significant near term catalyst for Red Robin Gourmet Burgers, Inc. RRGB, given that 2016 is likely to be an investment year for the company.

The analyst maintained a Buy rating on Red Robin, while lowering the price target from $91 to $85.

Price Target

Anderson explained that the price target cut followed the lackluster results reported by Brinker International, Inc. EAT, which could have implications for the broader bar and grill segment.

Weak Bar And Grill

Faring Better Than Peers

However, the analyst expects Red Robin to generate EPS growth of at least 20 percent in 2017, driven by 2-3 percent comp growth, efficiency gains from “Red Squared,” and a “benign environment for commodity costs.”

“We are taking a more cautious stance on RRGB’s 1Q16E (March) amid what we believe has been more recent weakness in the mid-scale bar-and-grill segment,” Anderson stated.

The analyst pointed out that Brinker International had reported that it had seen customers defect to quick-service burger chains, since this segment had been offering aggressive promotions. Traffic trends had worsened since the start of 1Q16.

However, Anderson also noted that Red Robin has been “faring better than peers,” although the analyst expects “some near-term margin investment to address lackluster sales.”

Anderson believes that the company is now better positioned to address competitive offers, as compared to 4Q15, although it could come at a “slight expense to margin.”

“For this reason, we argue that RRGB is in a better position to return to positive comps in the next few quarters than peers,” the analyst added.